Disney to acquire Marvel in $4 billion deal

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NEW YORK/LOS ANGELES (Reuters) - Walt Disney Co on Monday agreed to buy Marvel Entertainment Inc for $4 billion in the biggest media deal of the year, banking on Marvel's roster of superheroes to broaden its lineup of movie franchises that appeal to boys.

Disney adds Iron Man, Incredible Hulk and Thor to its roster of lovable characters like Mickey Mouse and Snow White, and will feature the comic book heroes in movies before rolling out associated theme park rides, TV shows and merchandise.

But the deal comes at a tough time in the entertainment business, with advertisers avoiding spending on new campaigns and consumers cutting back on everything from DVDs to travel.

The deal is also expensive. The price tag values Marvel at 37 times its estimated 2009 earnings, and offers shareholders a 29 percent premium to Friday's closing price. Standard & Poor's reacted by placing Disney's credit rating on its negative watchlist.

But the risk of overpaying did not deter Disney from seeking out a deal to address an area of concern among investors: How can it better reach more young males.

"This helps give Disney more important exposure to the young male demographic that they have sort of lost some ground with in recent years," said David Joyce, an analyst with Miller Tabak & Co.

Indeed, Disney has long been a blockbuster brand with girls thanks to characters such as "Hannah Montana," "Cinderella" and "Snow White," but has struggled to achieve the same kind of success with boys.

Movies including "Iron Man 2," due to hit theaters next year, or 2011's "Spider-Man 4" and "Avengers" should help resolve that issue.

Disney will also be able to use its marketing and entertainment strength -- stretching from ABC to cable television to theme parks -- to promote and build characters such as Thor in ways Marvel never could.

The deal is Disney's largest since the $7.6 billion purchase of Pixar in 2006, and it immediately caused reverberations. Shares in DreamWorks Animation SKG Inc spiked 5 percent on speculation it may become a takeover target.

And analysts raised questions about companies like Viacom Inc, Discovery Communications Inc, and Hasbro Inc that have existing business partnerships with Marvel.

UNDER-PROMISING?

To acquire Marvel, Disney agreed to pay a total of $30 per share in cash plus about 0.745 Disney shares for each Marvel share owned. The deal was approved by the boards of both companies.

The shares of Marvel, which was founded in 1939 and rolled out its first blockbuster character, Captain America, in 1941, shot up to a high of $49.29 before falling a bit to close at $48.37 on the New York Stock Exchange.

Disney approached Marvel a few months ago "to get to know them," Disney Chief Financial Officer Tom Staggs told Reuters. The overture began with a meeting between Disney Chief Executive Robert Iger and Marvel CEO Ike Perlmutter and evolved into merger discussions over a series of meetings.

"We at Disney had admired them because of their position and asset base," Staggs said. "With conversations over time we came to believe in the value of a combination."

Shares of Disney, which will acquire ownership of more than 5,000 Marvel characters, fell 3 percent to $26.04. The deal is expected to close by year-end, but will not add to Disney earnings until fiscal 2012.

The acquisition came as a surprise, even though Iger had mentioned recently the company would consider acquisitions that bolstered Disney brands across international markets and on new technology platforms.

While it could kick-start more deal making in the media sector -- where stocks have outperformed the broader Standard & Poor's 500 this year -- few analysts see another bidder making a play for Marvel.

A major reason is the presence of Marvel's Perlmutter, who owns 37 percent of the company and will oversee it within the Disney empire. Perlmutter will trade his stake in Marvel for a 1 percent stake in Disney, but will not receive a seat on its board of directors -- as did Pixar CEO Steve Jobs.

Disney executives drew a number of parallels between the Pixar and Marvel deals, and suggested it would keep the Marvel brand intact.

"The goal here is not to rebrand Marvel," Iger said on a conference call.

Caris & Co analyst David Miller said Disney was "sandbagging a little" by estimating the deal would not add to its earnings for another two years.

"They said the same thing with the Pixar deal," said Miller, who has "above average" ratings on both Disney and Marvel. "I think they will make it accretive a lot sooner. They are underpromising, as they always do."

(Reporting by Paul Thomasch; additional reporting by Franklin Paul, Gina Keating and John Tilak; editing by Derek Caney, Andre Grenon and Bernard Orr)